Borrowers in Cyprus now have a credit score, as a regulatory framework already in place in other developed economies for many years is finally introduced on the island.
The recent legislative change modernises the existing framework for exchanging credit data, making it possible to produce credit scoring assessment services.
What is a credit score?
A credit score is an additional tool supporting the assessment of a borrower's creditworthiness and credit behaviour by credit institutions. It is a numerical value assigned to a borrower based on information drawn from their credit behaviour data, used to place the borrower on a creditworthiness scale and to estimate the likelihood of defaulting on their financial obligations within the following 12 months.
The Credit Score is generated by statistical models that calculate it based on an assessment of the borrower's current and past transactional behaviour, as well as the composition of their credit obligations. The introduction of credit scoring represents a significant upgrade to the Artemis Data Exchange Mechanism, managed by Artemis Credit Bureau, Cyprus' credit bureau.
Satisfaction at the project's completion
Yiannis Tomasidis, General Director of Artemis Credit Bureau, told Politis he was pleased with the successful completion of the credit scoring project. He said the bureau welcomed the introduction of this innovation to the Cypriot economy, noting that international experience shows credit scoring delivers tangible benefits at both the macroeconomic and microeconomic level, strengthening credit institutions' risk assessment and channelling financing toward borrowers with a genuine capacity to repay, encouraging responsible borrowing, curbing over-indebtedness and, in turn, reinforcing financial stability. He described the project as "a significant piece of infrastructure for the financial sector and the economy" as a whole, not just for Artemis Credit Bureau itself, adding that the bureau was proud of its implementation.
The significance of the reform is underlined by the fact that it was a milestone under the Republic of Cyprus' Recovery and Resilience Plan. Specifically, the milestone referred to a "digital system for data exchange and the provision of credit scoring assessment services," under Policy Axis 3.5, "Ensuring financial and fiscal stability." The reform's ultimate aim is to address the high level of private debt that characterises the Cypriot economy.
The project was delivered on time through cooperation between multiple bodies: the authorities, namely the Ministry of Finance, the Central Bank of Cyprus and the Office of the Commissioner for Personal Data Protection; Artemis Credit Bureau; the Association of Cyprus Banks; the Association of Credit Acquiring Companies and Credit Facility Management Companies; and finally the organisations that take part in the Artemis Data Exchange Mechanism, namely banks, credit purchasers, credit management companies and leasing companies.
How it works
According to Dr Manolis Diakourakis, Director of Operations, Data Analysis and Project Management at Artemis Credit Bureau and head of the Credit Scoring Project, the Credit Score scale within the Artemis Mechanism runs from 1 to 671. He told Politis the score is dynamic and can change whenever a borrower's data within the mechanism changes, which is why it forms "an integral part" of the Credit Report produced by Artemis Credit Bureau, which sets out the borrower's credit obligations.
To ensure transparency, the Credit Score is accompanied by the three main factors that shaped it, which can be cross-referenced against the data in the Credit Report.
A Credit Score is generated only for principal debtors and co-debtors, so that their behaviour is assessed in relation to the credit facilities for which they hold primary responsibility. Borrowers can find out their Credit Score by contacting Artemis Credit Bureau's public service office.
The benefits of credit scoring
Credit scoring helps clean up financial transactions and reduce credit risk by upgrading how credit institutions assess borrowers' creditworthiness. This, in turn, strengthens responsible lending and protects borrowers from taking on unsustainable debt.
At the same time, the Credit Score helps borrowers themselves gain a fuller picture of their credit profile and creditworthiness as it changes over time. By knowing their score and the main factors that affect it, a borrower can improve their financial standing by demonstrating responsible borrowing behaviour. This can, in practice, help them secure better financing terms from credit institutions, since a healthy credit profile is associated with lower credit risk for a lender. Most importantly, credit scoring protects the borrower themselves, by helping ensure that any lending they receive from credit institutions stays within their financial means.
An important but supporting role
Despite its significance, credit scoring plays a purely supporting role for credit institutions and the other organisations participating in the mechanism, since it is weighed alongside all the other data they hold, in line with each institution's internal credit risk management policy and within the applicable supervisory framework, when deciding whether to grant a credit facility.
"The Credit Score generated does not, on its own, determine whether a borrower is granted a credit facility, and in any case does not replace the creditor's own judgement," Diakourakis said.
A robust legislative framework
The introduction of credit scoring was preceded by months of preparatory work on the legislative framework, carried out in close cooperation between the relevant authorities. Specifically, special provisions have been introduced into the Business of Credit Institutions Law, as well as related legislation connected to the Artemis Data Exchange Mechanism. At the level of secondary legislation, credit scoring has been incorporated into the Central Bank directive governing the operation of the Artemis Mechanism. Particular emphasis was placed on personal data protection during the development of the credit scoring legislative framework.
In a recent statement, the Ministry of Finance stressed that the passage of the legislative package enabling the introduction of credit scoring is a significant milestone for the implementation of the Recovery and Resilience Plan, and confirms the Republic of Cyprus' commitment to reforms that strengthen transparency, financial stability and the sustainable development of the economy.
